Thursday, July 3, 2008

Uniquely Placed to Weather the Economic Storm???

Just another (very) quick post in response to some comments that have been posted.

One post, in response to my post 'Economic Growth??' referred me to a speech by Alistair Darling:

'The chancellor on R4 this morning said that as Britain under New Labour has achieved the longest run of continuous growth ever, we are "uniquely well placed to weather the storm..."'

I am almost shocked that Darling can utter such a statement - note almost. The reality is that the UK is uniquely placed to suffer more from poor global economic conditions than (perhaps) any other Western country. I have detailed exactly why the UK is uniquely poorly positioned to 'weather the storm' in the essay 'A funny view of wealth'.

Of particular interest was that Alistair Darling suggested that the credit crunch was not home grown??? A quite extraordinary statement. He also, said that 'over the last ten years we have had strong growth'. This is less surprising as a statement, as it seems some people still believe that this is true. However, the idea that the last ten years represents growth is being shown to be a fiction even as I type. Most of this is covered in some depth in 'A funny view of Wealth' so I will confine myself to a few comments. As I am short of time on this occasion, forgive the less than comprehensive approach.

  1. The UK has the highest level of consumer debt in the OECD, which means that consumers must tighten their belts. the government presided over a boom in house prices, and made no attempt to restrain them. On a couple of occasions, arguably, Brown intervened to continue house price growth (e.g. allowing buy-to-let become part of pension provision when there was wobble in house price growth). Furthermore, the government ignored the increase in money supply that was fuelling the consumption and housing booms (the two are inter-related).
  2. The government failed to spot the obvious; that low inflation was not the result of sound economic policy, but the result of an expansion of productive capacity worldwide with the rise of the BRIC countries, and the competition that they generated. All the while he took credit for low inflation growth, when low inflation was completely unrelated to government policy.
  3. The government has been increasing debt during the 'good' times, and any further increase in debt will decimate the remaining confidence in the UK economy. Quite simply, the debt cupboard is bare. Furthermore, even more debt is buried in PFI, and this sits 'off balance sheet'.
  4. Taxation as a percentage of GDP has risen, and will need to rise further as tax revenues decline with recession, and expenditure increases (e.g. from paying benefits - increase in unemployment). Alternatively the government will need to cut services, thereby further increasing unemployment. In fact, whatever the government does, there is no solution, as increasing tax will further hurt the economy, or cutting services will increase unemployment. In short, increase tax/decrease tax - both will have the short term effect of plunging the economy deeper into recession. For the long term, cutting services is the only answer, but will Gordon Brown have the courage to make that decision? It is also worth noting that, whilst many other countries have been cutting taxation, Gordon Brown increased taxation. The expansion in the UK of the state and increased taxes have created a structural problem in the economy, and there is no way to unwind the problem without severe pain.
  5. Business has been complaining at the endless increase in 'red tape', and this is damaging the ability of firms to compete.
I could go on, but must rush through this.

As I have said, I have not really had time to post a serious response due to other commitments, but had to comment on such outrageous statements from Alistair Darling (whilst it was still timely). Either he is delusional or he is just lying. I have no idea which, but find lying to be the preferable of the two options. If he actually believes his own statements, then the UK economy is in very, very serious danger.

1 comment:

  1. An excellent blog.

    I have a question if I may.

    Reading your essays one can't help but wonder at the enormity and depth of the government cock-ups that have made us the country we are today.

    Looking at the exquisite perfection of the US and UK's problems, do you ever, just for a fleeting moment, wonder whether any of this might have been deliberate?


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